PLR 200805013: Foreign entity may change its tax classification within 60 months

Plain-English summary

A foreign entity had elected to be disregarded for federal tax purposes. After a corporation acquired it, the entity wanted to elect corporate tax treatment even though less than 60 months had passed since its earlier classification election. The IRS consented to the early change and gave the entity 60 days from the letter date to file Form 8832. The new classification would take effect on the redacted date specified in the request. The ruling addresses the classification election only, not other tax consequences of the acquisition.

Ruling snapshot

• Question: Could the entity elect corporate tax treatment within 60 months of its prior classification election?
• Outcome: Approved; the IRS consented and allowed 60 days to file Form 8832.
• Key authorities: Treas. Reg. §§ 301.7701-3(c)(1)(iv), 301.9100-3.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200805013
Third Party Communication: None
Release Date: 2/1/2008
Date of Communication: Not Applicable
Index Number: 7701.00-00, 9100.00-00,
9100.31-00
Person To Contact:
----------------------, ID No. -------------
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Telephone Number:
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------------------------------------------------------------ Refer Reply To:
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CC:PSI:B03
-------------------------------------------------- PLR-133843-07
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Date:
------------------------------------------------------ October 31, 2007

Legend:

X = ------------------------------------------------------------------------------------------------
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-----------------------

Y = ----------------------

Z = ------------------------

Country #1 = ----------------------

Country #2 = ----------

D1 = -----------------------

D2 = ---------------------------

D3 = ---------------------------

D4 = -------------------------

Dear ---------------:

This letter responds to a letter dated July 10, 2007, and subsequent correspondence, submitted on behalf of X, requesting a ruling under § 301.7701- 3(c)(1)(iv) and § 301.9100-3 of the Procedure and Administration Regulations.
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Specifically, the Service’s consent is requested to change X’s classification from a disregarded entity to an association taxable as a corporation, effective D4.

Facts:

X was formed on D1 under the laws of Country #1. X represents that it is a foreign entity eligible to elect to be classified as an association taxable as a corporation for federal tax purposes. X was a wholly-owned subsidiary of Y, a domestic corporation. X elected to be classified as a disregarded entity for federal tax purposes effective D2. Z, a Country #2 corporation, acquired X, through a subsidiary entity, on D3. Upon Z’s acquisition of X, it was intended that X would be treated as an association taxable as a corporation effective D4. Because an entity classification election was made within 60 months prior to D4, X requests the Service’s consent under § 301.7701-3(c)(1)(iv) to change its classification.

Law and Analysis:

Section 301.7701-3(a) provides, in part, that a business entity that is not classified as a corporation under § 301.7701-2(b)(1), (3), (4), (5), (6), (7), or (8) (an eligible entity) can elect its classification for federal tax purposes as provided in § 301.7701-3. An eligible entity with a single owner can elect to be classified as an association (and thus a corporation under § 301.7701-2(b)(2)) or to be disregarded as an entity separate from its owner.

Section 301.7701-3(b)(2)(i) provides that except as provided in § 301.7701- 3(b)(3), unless the entity elects otherwise, a foreign eligible entity is (A) a partnership if it has two or more members and at least one member does not have limited liability; (B) an association if all members have limited liability; or (C) disregarded as an entity separate from its owner if it has a single owner that does not have limited liability.

Section 301.7701-3(c)(1)(i) provides, in part, that an eligible entity may elect to be classified other than as provided under § 301.7701-3(b), or to change its classification, by filing Form 8832, Entity Classification Election, with the service center designated on Form 8832.

Section 301.7701-3(c)(1)(iii) provides that an election under § 301.7701-3(c)(i) will be effective on the date specified by the entity on Form 8832 or on the date filed if no such date is specified on the election form. The effective date specified on Form 8832 can not be more than 75 days prior to the date on which the election is filed and can not be more than 12 months after the date on which the election is filed. If an election specifies an effective date more than 75 days prior to the date on which the election is filed, it will be effective 75 days prior to the date it was filed.
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Section 301.7701-3(c)(1)(iv) provides, in part, that if an eligible entity makes an election under § 301.7701-3(c)(1)(i) to change its classification, the entity cannot change its classification by election again during the sixty months succeeding the effective date of the election. However, the Commissioner may permit the entity to change its classification by election within the sixty months if more than fifty percent of the ownership interests in the entity as of the effective date of the subsequent election are owned by persons that did not own any interests in the entity on the filing date or the effective date of the entity’s prior election.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension of time under the rules set forth in § 301.9100-2 and § 301.9100-3 to make a regulatory election, or a statutory election (but not more than 6 months except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue Code, except subtitles E, G, H, and I.

Section 301.9100-2 provides the standards the Commissioner will use to determine whether to grant an automatic extension of time for making certain elections. Section 301.9100-3 provides the guidelines for granting extensions of time for making elections that do not meet the requirements of § 301.9100-2.

Section 301.9100-3(a) provides that requests for relief subject to § 301.9100-3 will be granted when the taxpayer provides the evidence (including affidavits described in § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the interests of the Government.

Conclusion:

Based solely on the facts submitted and the representations made, we consent to X changing its classification for federal tax purposes less than 60 months after its previous classification change. As a result, X is granted an extension of time of 60 days from the date of this letter to file a Form 8832 with the appropriate service center and elect to be classified as an association taxable as a corporation, effective D4. A copy of this letter should be attached to the Form 8832.

Except as specifically set forth above, we express no opinion concerning the federal tax consequences of the above described facts under any other provision of the Internal Revenue Code.

This ruling is directed only to the taxpayer who requested it. Section 6110(k)(3) provides that it may not be used or cited as precedent.
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In accordance with a power of attorney on file with this office, we are sending a copy of this letter to X’s authorized representative.

Sincerely,

/s/

William P. O’Shea
Associate Chief Counsel
(Passthroughs & Special Industries)

Enclosures (2):
Copy of this letter
Copy for § 6110 purposes

cc: